image description

Beneficial Ownership Transparency

Every year, over two million corporations, LLCs, and other business entities are formed in the United States—with many states collecting less information from the individuals forming these entities than from people applying for a driver’s license. Information about natural persons who directly or indirectly exercise substantial control and persons who receive substantial economic benefits from the company/legal entity is not collected. This anonymity facilitates domestic and foreign corruption by allowing individuals to hide their identities and their corruptly obtained assets behind the façade of a U.S. corporation. Once a U.S. corporation is formed, it can easily open one or more bank accounts, wire money, buy property and engage in activities that launder the tainted funds.  Moreover, anonymous entities can contribute to “Super PACs” (technically independent expenditure-only committees) and 501(c)(4) (tax exempt social welfare) entities without disclosing their beneficial owners.

In the past, the U.S. government pledged to increase transparency of companies formed in the United States in a number of international fora, the most recent in 2014 in the G20 High Level Principles on Beneficial Ownership transparency.  Increased transparency was also part of the U.S. Government’s Third National Open Data Action Plan, last published in October  2015.  But the Government has done little to actually implement these promises and, in fact, has postponed publishing the Fourth Action Plan until sometime in fall 2018. As a result, meaningful progress in the U.S. remains elusive. While there are legislative efforts to create transparency, nothing has changed to date.

In contrast, other international players have made significant strides to force transparency of legal entities.  The United Kingdom, for example, enacted legislation in March 2015 that requires U.K. companies to keep a register of people with significant control over the company (those individuals who own or control more than 25 per cent of a company’s shares or voting rights or who otherwise exercise control over a company or its management).  In 2016, the United Kingdom published the world’s first fully open register of beneficial ownership. The U.K. has also committed to introducing a register of overseas companies that own U.K. property. The U.K. Government recently announced that it would not oppose an amendment to that legislation, which would expand the scope to U.K. overseas territories, such as the British Virgin Islands and the Cayman Islands.

Just as significant, the European Union agreed to amend the Fourth Anti-Money Laundering Directive to strengthen the provisions requiring transparency of beneficial ownership.  The amendments will 1) make public the beneficial ownership registers for legal entities, such as companies; 2)  improve transparency on trusts for law enforcement, the professional sectors subject to Anti-Money laundering rules (e.g., banks, lawyers) and other persons who can demonstrate a legitimate interest; 3)  improve connection of the beneficial ownership registers among EU Member States; and 4) lifting the anonymity on electronic money products (prepaid cards) in particular when used online.

The Coalition for Integrity believes it is crucial that we achieve the following goals in the U.S.:

  • Require states to collect information about the beneficial owners of companies and trusts.
  • Require the real estate industry to carry out adequate background checks to determine where the money used for luxury property comes from and identify the ultimate individual with a beneficial interest in the property.
  • Require Super PACs and 501(c)(4) entities to determine and report the ultimate source of all their funders.

Our recent advocacy toward these goals includes the following:

  • Supporting incorporation transparency legislation in the U.S. Congress that would require states to collect beneficial ownership upon company formation. We joined several other civil society organizations in sending a letter to Representatives Maloney, King, Royce, Moore, and Waters expressing support for the bipartisan Corporate Transparency Act (H.R. 3089), which would require companies to disclose information about the beneficial owners at the time they are created. A letter was also sent to Senators Whitehouse, Grassley, and Feinstein to express support for the Senate version of the bill, the bipartisan True Incorporation Transparency for Law Enforcement (TITLE) Act (S. 1454).
  • In December 2017, the Coalition for Integrity submitted comments for the official record of the Joint Hearing entitled “Legislative Proposals to Counter Terrorism and Illicit Finance.” Our comments focused on the beneficial ownership section (Section 9) of the draft “Counter Terrorism and Illicit Finance Act.”

Our past advocacy has included:

  • Urging the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to strengthen and finalize the rules proposed in 2014 requiring financial institutions to carry out appropriate due diligence to identify and verify the ultimate beneficial owners of legal entity customers. As a result of our advocacy, Treasury finalized the rules in May 2016 and the rules came into effect in May 2018.
  • Urging FinCEN to close the loopholes in the current legal framework that allow corrupt individuals to launder money in the U.S. through anonymous real estate transactions. As a result of our advocacy, the U.S. Department of Treasury announced in January 2016 that it would begin a pilot project for identifying and tracking secret buyers of high-end properties in select markets. The Financial Crimes Enforcement Network (FinCEN) recently renewed the Geographic Targeting Orders (GTOs). This is the third time the GTOs have been extended. We welcome the announcement and ask Treasury to expand the program to the entire country and make it permanent. We also want Treasury to repeal the exemption granted in 2002 to persons involved in real estate settlements and closings from the Patriot Act requirement of implementing AML programs.